Retirement is a well-deserved rest after years of hard work. But it is also a phase where you need to be financially independent. To achieve that, you should start investing and saving for retirement early. Investments help to grow your wealth, and savings offer a safety net during emergencies. However, even with careful planning, there is always confusion if your savings and investments are enough to support your golden years.
Many people worry about running out of funds, but a retirement calculator offers a solution. With just basic details such as your current finances, future goals, present savings or investments, and expected expenses, it helps you calculate the amount you need for a comfortable retirement and how much to save and invest to reach that target.
Read on to know how to use a retirement calculator to develop a realistic retirement plan that ensures security in your golden years.
- Evaluate your current finances
This step involves evaluating your assets, savings, investments, or liabilities. Now calculate your total monthly income from various sources and subtract your monthly expenses, including loan payments, to find out your disposable income available for retirement savings.
Suppose your monthly income is Rs. 70,000, and your expenses, including loan payments, amount to Rs. 40,000. Here, you have a surplus of Rs. 30,000 per month that you can allocate towards retirement savings. Assessing your financial situation helps you understand how much you can realistically contribute towards your retirement fund.
- Determine your retirement goals
This step involves envisioning the lifestyle you desire during your retirement years. Consider the activities you plan to pursue, such as travelling, pursuing hobbies, or maintaining a similar standard of living. Factor in potential medical expenses and rising living costs to ensure you set calculative and achievable goals. This will help you figure out how much money you will need to save to achieve your retirement goals.
- Find a reliable retirement calculator
Numerous financial institutions, mutual funds, and retirement planning websites in India offer retirement calculators. Look for a calculator that offers a user-friendly interface and easy-to-understand results with more accuracy. Now gather all the necessary financial information to use the tool.
The retirement planning calculator will typically ask for personal details such as your current age, desired retirement age, life expectancy, existing salary, and income growth rate.
Now enter your savings and investment details. These include the total savings balance, the type of investment you make, such as mutual funds investment, ULIP, etc., and estimated returns. Then input the monthly contribution towards retirement savings. Some calculators also have additional sections, like inflation rate and health insurance plans, to generate more accurate and precise results.
Once you enter these details, simply click on Calculate. It will provide valuable insights into various aspects, such as the amount you need to save each month, the estimated corpus you can accumulate by the time you retire, and the sustainable income you can expect during retirement.
- Interpret the results
Approach the results with a critical mindset and consider their implications for your retirement planning. This will help you identify any gaps or shortfalls in your retirement savings and make strategic decisions to allocate your resources wisely for a secure retirement.
For instance, if the calculator shows a shortfall, you can adjust your retirement plan accordingly. To bridge any gaps in retirement savings, explore strategies such as:
- Review your current expenses and identify areas where you can reduce expenses without sacrificing your quality of life. Reallocate those funds towards your retirement corpus.
- Increase your monthly savings in the best mutual funds or other growth-oriented assets.
- Diversify your mutual fund portfolio with stocks, bonds, real estate, gold funds, and more securities.
- Contribute more towards Employees Provident Fund (EPF), Public Provident Fund (PPF), National Pension System (NPS), and other retirement schemes.
A retirement calculator streamlines the retirement planning process by offering a user-friendly interface, customizable inputs, and realistic projections. With its accuracy, it helps you make more calculative and strategic decisions. However, it is equally important to monitor your progress over time and make necessary adjustments to your retirement plan.
